Towns of Alexandria, Minn. v. Federal Power Commission

• Decision Date: 15 April 1977
• Docket Number: 74-2100,Nos. 74-2099,s. 74-2099
• Citation: 181 U.S.App.D.C. 83,555 F.2d 1020
• Parties: , 20 P.U.R.4th 296 The TOWNS OF ALEXANDRIA, MINNESOTA, et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Otter Tail Power Company, Intervenor. The VILLAGE OF ELBOW LAKE, MINNESOTA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Otter Tail Power Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1020

555 F.2d 1020

181 U.S.App.D.C. 83, 20 P.U.R.4th 296

The TOWNS OF ALEXANDRIA, MINNESOTA, et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Otter Tail Power Company, Intervenor.

The VILLAGE OF ELBOW LAKE, MINNESOTA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Otter Tail Power Company, Intervenor.

Nos. 74-2099, 74-2100.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 12, 1976.

Decided April 15, 1977.

Donald R. Allen, Washington, D.C., with whom C. Emerson Duncan, II, and Dorothy R. Burakreis, Washington, D.C., were on the brief, for petitioners.

Philip R. Telleen, Atty., F.P.C., Washington, D.C., with whom Drexel D. Journey, Gen. Counsel, Robert W. Perdue, Deputy Gen. Counsel, and Allan Abbot Tuttle, Sol., F.P.C., Washington, D.C., were on the brief, for respondent.

Cyrus A. Field, Fergus Falls, Minn., with whom David F. Lundeen, Fergus Falls, Minn., was on the brief, for intervenor.

Before TAMM and ROBINSON, Circuit Judges, and JUSTICE, ^* United States District Judge for the Eastern District of Texas.

Opinion for the Court filed by SPOTTSWOOD W. ROBINSON, III, Circuit Judge.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

We are confronted on this review by two questions. One is whether the Federal Power Commission properly declined to pass on a municipality's claim of rate discrimination by an electric utility prior to completion of a full hearing designed to enable determination of a just and reasonable rate for the utility. The other is whether the Commission properly expanded the scope of the proceeding to assure that the rate would not discriminate or operate unreasonably against other municipal customers of the utility. We answer both questions in the affirmative.

I

Otter Tail Power Company, a public utility subject to the Federal Power Act, ¹ sells electricity at retail in several hundred communities in Minnesota and two adjoining states. For many years the Village of Elbow Lake, Minnesota, purchased its requirements from Otter Tail at retail rates. In 1966, the citizens of Elbow Lake voted to establish their own municipal distribution facilities, but Otter Tail refused to provide Elbow Lake with power at wholesale. Otter Tail was also unwilling to transmit--"wheel"--over its lines energy which Elbow Lake could have bought at wholesale from the Bureau of Reclamation of the Department of the Interior and various electric cooperatives. Thus isolated from these sources, Elbow Lake set up a generating plant for its distribution system and brought its case to the Commission, asking that Otter Tail be directed to interconnect with its system and supply it with wholesale power. In Opinion No. 551, the Commission initially granted a temporary connection, ² which in Opinion No. 603 it later made permanent. ³

Meanwhile, the Government instituted an antitrust action against Otter Tail in the District of Minnesota, charging monopolization of retail distribution of electricity in its service area. The District Court held that Otter Tail had endeavored to block communities from replacing its expiring retail distribution franchises with municipal distribution systems. ⁴ Prominent among the monopolistic techniques condemned was Otter Tail's refusal to sell energy at wholesale or to wheel power to proposed municipal systems in communities in which it retailed power. ⁵ The court enjoined these practices but specified in its judgment that Otter Tail "shall not be compelled ... to furnish wholesale electric service or wheeling service to a municipality except at rates which are compensatory and under terms and conditions which are filed with and subject to approval by the" Commission. ⁶

On direct appeal, the Supreme Court affirmed the decision in these respects, ⁷ but with a caution:

We do not suggest, however, that the District Court, concluding that Otter Tail violated the antitrust laws, should be impervious to Otter Tail's assertion that compulsory interconnection or wheeling will erode its integrated system and threaten its capacity to serve adequately the public.... [T]he Commission may not order interconnection if to do so "would impair [the utility's] ability to render adequate service to its customers" ⁸.... The District Court in this case found that the "pessimistic view" advanced in Otter Tail's "erosion study" "is not supported by the record." ⁹ Furthermore, it concluded that "it does not appear that Bureau of Reclamation power is a serious threat to the defendant nor that it will be in the foreseeable future." ¹⁰ Since the District Court has made future connections subject to Commission approval and in any event has retained jurisdiction to enable the parties to apply for "necessary or appropriate" relief ¹¹ and presumably will give effect to the policies embodied and in the Federal Power Act, we cannot say under these circumstances that it has abused its discretion. ¹²

II

When the Supreme Court so ruled, Elbow Lake was purchasing, as we have said, electricity from Otter Tail at wholesale. Promptly after the decision, Elbow Lake contracted with the Bureau of Reclamation for wholesale power and called upon Otter Tail to wheel it in. It then became incumbent upon Otter Tail to design, and upon the Commission to scrutinize, rates and other terms for the wheeling arrangement. Otter Tail asked the Commission to set a compensatory rate, which Otter Tail calculated at 5 mills per kilowatt hour. ¹³

At the time, Otter Tail was wheeling preference power to 17 municipalities in Minnesota and South Dakota pursuant to a contract with the Bureau of Reclamation setting a wheeling rate of 1 mill per kilowatt hour, on quadrennial determinations by Otter Tail of excess transmission capacity. ¹⁴ It also contracted individually with municipalities for transmission firming service at 1.5 mills, discounted for customers with generation. ¹⁵ In response to Otter Tail's petition, Elbow Lake asserted that the 5-mill rate was unduly discriminatory because it greatly exceeded the rates which Otter Tail charged the neighboring communities, and sought relief accordingly. ¹⁶

By order issued October 31, 1973, the Commission held that Otter Tail's tendered rate was an initial rate for a new type of service. ¹⁷ The Commission explained:

Although Opinion No. 603 ¹⁸ provided for the interim nature of Otter Tail's interconnection and wholesale service ordered therein and anticipated future sale of [Bureau of Reclamation] power to Elbow Lake, Otter Tail's submittal cannot realistically qualify as a change in rate schedule ... because it effects a change in the nature of service to Elbow Lake by supersedence of all-requirements wholesale service by wheeling of [Bureau] power.

The Otter Tail filing amounts to a new rate for a new type of service and should so qualify pursuant to Section 205 of the Federal Power Act ¹⁹ and Part 35.12 ²⁰ of the Regulations issued thereunder. ²¹

The Commission thus concluded that it "should (1) accept the filed rate as an initial rate schedule in order to implement wheeling service as directed, and (2) enter upon a hearing to determine the justness and reasonableness thereof." ²²

Elbow Lake applied for rehearing, arguing that the wheeling service afforded it differed in no way from that furnished the 17 municipalities under the Otter Tail-Bureau of Reclamation contract and associated special municipal service agreements with Otter Tail. Elbow Lake sought a survey of the wheeling services and approval of the 17-town rate for itself, with resultant treatment of Otter Tail's tendered rate as a request for a rate increase. The Commission denied rehearing:

The Commission's exposition that it would not, without hearing, order Otter Tail to file a rate which differs from that submitted, does not, of course, preclude the Commission from ordering Otter Tail to file a different rate or conditioning the tendered rate appropriately after the conduct of a hearing thereupon. It was the intent of the Commission in fact to institute a hearing and investigation herein to best determine the very issues raised by Elbow Lake's allegations. Commission predetermination based upon the pleadings of whether the accepted rate is compensatory, just, reasonable, unduly discriminatory or preferential would be premature and unwarranted at this stage. ²³

Hearings before an administrative law judge then got under way, and had proceeded to completion on some issues, including discrimination and rate of return, when the judge felt it necessary to recommend reconsideration by the Commission of the scope of the remainder of the inquiry. While the presentations to the judge were designed to establish the cost of service to Elbow Lake and a rate of return therefor, Otter Tail's wheeling contracts with some of the 17 towns had expired in the interim and all but three of the rest were approaching their terminal dates. During the hearings, Otter Tail had voiced its view that the long-since fixed 1-mill flat rate to the 17 towns was noncompensatory, and had manifested as its expectation, and later had declared as its intention, replacement of the 1-mill-rate contracts with service agreements specifying whatever rate the Commission eventually approved for Elbow Lake. ²⁴ Since none of the 17 towns was a party to the proceeding, and since some possibly were even unaware of it, the judge recommended that the Commission's hearing order "be revised to show that the scope of the hearing is to cover the rate for the transmission service to all communities receiving such service, including the 17 towns now being served in addition to Elbow Lake; that the 17 towns ... be formally notified ... as in the case of any rate change; that they be permitted to participate and intervene if they are so advised; and that the parties be called upon to furnish copies of their cost studies and exhibits to any who intervene and wish to participate in the hearing...." ²⁵ The judge added:

Alternatively, if the...